Report on CalSTRS Meetings, June 7,8,9, 2006
By Pat Geyer, CRTA Liaison

Executive Summary

1. CalSTRS will hedge other currencies in addition to its program of hedging
the dollar in order to earn an additional $60 million.

2. AB 2941 (Koretz), which prohibits CalSTRS and CalPERS from investing in
companies doing business in Sudan, is undergoing changes.  AB 2941 will be
discussed again at the CalSTRS meeting in July

3. Since growth of fund income has the potential to solve 2/3 of the
unfunded liability, it is essential that CalSTRS provide the financial
incentive.  It is proposed that salaries for CEOs and CIO be increased by
an average of 8-10% and the salaries of the 14 portfolio managers be
increased by 32%.  In addition portfolio managers will receive a bonus if
their investments are higher than the benchmarks set by CalSTRS

4.  The 2005-6 Audit Plan called for 65 school district audits, of which 22
are in progress and 18 are finalized or completed.  STRS plans to hire
outside auditors to complete the audits.

5.  SJR 15 (Dutton), which requests the President and Congress to remove the
Government Pension Offset and the Windfall Elimination Provision from Social
Security, has passed.

6.  Legislation by Assemblyman Richman restricting defined benefit pension
plans is dead or not moving this legislative session

7.  Retired members and active members who have already selected a
retirement option can change their option selection from 1-1-07 to 6-30-07.Â
  The new choices will depend on the previous option/annuity selection. 
Look for detailed information in the fall STRS Retired Teacher bulletin.

8.  At the STRS Board meeting a Health Task Force was approved with Dana
Dillon, as Chair and Jerilyn Harris, Vice-Chair.

9.  CalSTRS will move to a new building in West Sacramento in 2009

10.  David Crane was not confirmed by the Senate so he will leave the
CalSTRS Board.

11. The next CalSTRS meeting will be July 13 when the Board will discuss
work plans.  At the September 7, 8 meeting the Board will discuss the
unfunded liability.



Investment Committee

Allen Emkin of PCA (Pension Consulting Alliance) presented a interactive
session on asset allocation.  The computer program suggested how much to
invest in each asset class (stocks, bonds, etc) based on whether one wanted
low cost, 100% funding, or less volatility from year to year.  The choices
did not yield great changes because of the requirements (constraints) on how
much could be put in each category. Presently CalSTRS asset allocation is
similar to other pension funds with the exception that CalSTRS has 5% more
investments in non US stocks.

Under the currency hedging program CalSTRS agreed to allocate an additional
$4-6 Billion to the program in order to earn an additional $60 million. 
CalSTRS will hedge other currencies in addition to its program of hedging
the dollar.

AB 2570 (Arambula) requires public pension funds to report on investments
made in California and emerging domestic markets with the goal of 2%
invested in emerging domestic markets.  CalSTRS already has such a policy
and has met the 2% goal.  However, the Board opposed the policy of the
legislature dictating investment goals.


The Committee discussed geopolitical risk and the issue of investing in
companies that continue to do business in Sudan. AB 2941 (Koretz), which
prohibits CalSTRS and CalPERS from such investments, is undergoing changes. 
AB 2941 will be discussed again at the CalSTRS meeting in July.  At this
time the bill will not indemnify the fund for money lost from divestment. 
Jerilyn Harris (retired teacher representative) stated that she was
concerned about the financial impact on the CalSTRS fund.  (The present
CalSTRS policy is that where there is geopolitical and social risk managers
shall invest in alternatives as long as suitable alternatives are available
and do not diminish the portfolio return.)


Compensation Committee

McLagan Partners made a presentation regarding compensation of CEOs,
particularly in the investment sector.  In the last six months there has
been a high turnover in public sector CEOs.  In addition there has been a
small increase in salary but a double-digit increase in bonuses.  CalSTRS
investment personnel salaries are lower compared with other funds.  It is
proposed that salaries for CEOs and CIO be increased by an average of 8-10%
and the salaries of the 14 portfolio managers be increased by 32%.  In
addition portfolio managers will receive a bonus if their investments are
higher than the benchmarks set by CalSTRS.  Since growth of fund income has
the potential to solve 2/3 of the unfunded liability, it is essential that
CalSTRS provide the financial incentive.


Audits and Risk Management Committee

The committee heard a report on the school district audits.  For the 2004-5
year â?" 27 school district audits were completed.  The 2005-6 Audit Plan
called for 65 school district audits, of which 22 are in progress and 18 are
finalized or completed.  STRS plans to hire outside auditors to complete
the audits.  The Department wants a much larger limited review of districts
so STRS can get the message out about accurate data.  Presently, inaccurate
school district data results in incorrect pension payments.  Audit Services
recommends Mr. Beck from the Association of Public Pension Fund Auditors to
do an external peer review of Audit Services.

Board Governance Committee

CalSTRS  discussed campaign contributions to elected officials from donors
who are seeking or doing business with the CalSTRS fund.  The three teachers
elected to the STRS Board must report contributions over $250, but the
elected officials or their representatives who serve on the Board are not
required to report.  In the past state and federal regulators have moved to
crack down on â?opay to playâ? campaign contributions.  CalSTRS plans to
review the issue of campaign contributions in September.



Client Advisory Committee

CRTA President Elect, Betty Soennichsen, CRTA Legislation Chair, Ken Hewitt,
and Pat Geyer CRTA Liaison attended the meeting.

Scott Blackledge, STRS, reported on legislation.  SB 1465 (Soto) provides
monthly benefits to dependent children under Coverage B when there is no
surviving spouse, allows purchase of out-of-state service credit for those
employed in a public education, and streamlines legislative reporting
requirements.  SB1465 passed the Senate and will be heard June 21 in the
Assembly.

SJR 15 (Dutton), which requests the President and Congress to remove the
Government Pension Offset and the Windfall Elimination Provision from Social
Security, has passed.

AB 2462 (Mullin), which authorizes STRS to supply 402b plan services to
school districts and employees, has passed the Assembly and will be heard in
the Senate.

Legislation by Assemblyman Richman restricting defined benefit pension plans
is dead or not moving this legislative session.

In Federal legislation, CalSTRS is working to get the final Elk Hills
payment of $9.1 million included in the fiscal year 2007 budget.

Beginning January 1, 2007, there will be changes to the Defined Benefit
options.  For active members:  Options 2,3,4, and 5 choices will stop. 
The Single Life Annuity Without Cash Refund will no longer be available.

Retired members and active members who have already selected a retirement
option can change their option selection from 1-1-07 to 6-30-07.  The new
choices will depend on the previous option/annuity selection.  Look for
detailed information in the fall STRS Retired Teacher bulletin.

In the discussion session, Ken Hewitt, CRTA, requested that the SBMA
(supplemental benefit maintenance account) not be moved to the general STRS
fund.  He requested an 85% SBMA payment since there was money available.  Ed
Derman, STRS Deputy CEO, replied that inflation might eliminate that
possibility and a move to the general fund would guarantee the present 80%
SBMA payment.

Benefits and Services Committee

Peggy Platt, Deputy CEO, reported that Charter schools are not always
correctly reporting and employees are not always getting pension credit for
their services.  There is a lack of communication between the Charter
Schools and the School Districts or County Offices who supervise them.

Call Center service is good even though some 11,000 educators will retire
this year, about the same as last year.  Ed Derman, Deputy CEO, reported
that CalSTRS is planning to offer additional services at the CalSTRS field
offices, a full analysis and plan will be completed next year.

A report was made about the California Teachers Study on breast cancer. 
Interested members can view the results on Calteachersstudy.org

Beginning in 2007, public employers, including schools will be required to
disclose on their financial statements the financial liability associated
with health care and other benefits for retired employees.  CalSTRS wants to
work with CalPERS, representatives of school employers and employees to see
what they can do to assist.  Jerilyn Harris, retired educator
representative, asked that a task force look at general problems of health
care, especially for retirees.  CRTA and other educator groups spoke in
support of a Health Task Force.  At the STRS Board meeting a Health Task
Force was approved with Dana Dillon, as Chair and Jerilyn Harris, Vice-Chair

Teachers Retirement Board

CalSTRS will move to a new building in West Sacramento in 2009.  The new
building will have the capability of videotaping STRS meetings for live
broadcast.

CalSTRS will credit approximately half of additional earnings (above the 8%)
for individual Defined Benefit and Cash Balance accounts when the funds are
more than 110% funded.  The reason for the reserve is that the DB and CB
accounts are guaranteed 8% each year even if the funds do not earn that
amount.

CalSTRS increased fiduciary liability insurance coverage from $25 million to
$100 million.  The deductible was increased from $1 million to $25 million.Â
  Annual premium increased from $700,000 to $817,000.

David Crane, appointee to the CalSTRS Board by Governor Schwarzenegger, was
not confirmed by the Senate Rules Committee.  Crane will leave the board
after the July meeting.

Jack Ehnes, CEO reported that the CalSTRS fund stands at $142 billion as of
May 31, 2006.

The next CalSTRS meeting will be July 13 when the Board will discuss work
plans.  At the September 7, 8 meeting the Board will discuss the unfunded
liability.